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IMF Survey : Mideast Needs Growth to Create Jobs and Raise Incomes

Growth in Mideast not high enough to reduce unemployment, raise incomes

Arab countries in transition should avoid downward economic spiral

Bold structural reforms needed without delay to kick-start growth

With regional growth averaging just over 2 percent in 2013, managing popular expectations for improved employment prospects and higher incomes remains a challenge for the Middle East and North Africa (MENA) region.

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The IMF has called for resolute actions to kick-start growth among other policy priorities.

Economic challenges facing the region were a focal point for policymakers during the 2013 IMF-World Bank Annual Meetings in Washington last week. The meetings brought together ministers and top government officials, as well as journalists, academics, bloggers, and representatives of civil society and the private sector from all over the world to discuss the critical issues facing the world economy. Middle East issues were high on the agenda.

In addition to meetings with country delegations, IMF officials participated in regional and global forums with a focus on the MENA region. Discussions, led by IMF Managing Director Christine Lagarde, Deputy Managing Director Nemat Shafik, and Middle East Department head Masood Ahmed, covered a broad range of topics, including ways to harness the region’s vast potential.

Outlook and policy priorities

The past three years have been difficult for the region’s oil-importing countries, many of which are Arab countries in transition. “The combination of political uncertainty, social pressures, and regional conflict has further delayed economic recovery, and the region’s oil-importing countriesare expected to grow at an average of just 3 percent in 2013–14. This is far below the growth rates necessary to reduce persistent unemployment and improve living standards,” IMF Middle East Department Director Masood Ahmed told reporters in Washington last week during a briefing on economic developments in the region.

Ahmed outlined three policy priorities for the region’s oil-importers: creating jobs to help sustain the socio-political transition, making fiscal policy more equitable and efficient, and embarking—without delay—on a bold structural reform agenda that will improve the business climate, reform the labor market, support better governance, and enhance equity.

Looking at developments in the oil-exporting countries of the Middle East, Ahmed expects overall growth to drop markedly this year—to about 2 percent—driven by lower oil production. This is on account of lower global demand as well as domestic oil supply disruptions. “Growth will likely increase to 4 percent in 2014 with a recovery in global demand and higher oil production in Saudi Arabia, Iraq, and Libya,” Ahmed said.

“Governments of the region’s oil-exporting countries will need to find ways to rein in hard-to-reverse current expenditures (wages and subsidies) while targeting high-quality capital investments and social programs,” Ahmed told reporters. “High on the agenda for this group of countries is also the need to pursue structural reforms to bolster private-sector growth, diversification, and job creation,” he added.

Arab Countries in Transition

In an environment of heightened socio-economic tensions, regional insecurity, and strained public finances, the Arab Countries in Transition—Egypt, Jordan, Libya, Morocco, Tunisia, and Yemen—face the difficult task of delivering on their populations’ expectations for jobs and growth.

IMF Managing Director Christine Lagarde met with ministers of finance and central bank governors from the MENA region to discuss pressing economic issues, listening to their perspectives and exploring options for moving ahead. An IMF report, delivered at the Deauville Partnership Meeting of Finance Ministers, discussed the economic challenges that the transition countries are currently facing. The report also emphasized the need for resolute policy actions and more support from the international community.

The IMF report noted that despite some patchy improvements in a few countries, economic growth remains subdued, private investment is weak and external and fiscal buffers are running low. “Fostering social cohesion and avoiding a downward spiral of economic and political malaise calls for urgent implementation of economic reforms and coordinated support from the international community,” the report said.

“We know that there’s a familiar list of structural reforms, which includes a better business environment, greater transparency and accountability of public political institutions, better skills and incentives for employment, better access to finance, and more trade integration,” IMF Deputy Managing Director Shafik told the conference and asked the panelists “how can countries move from the list to the actions?”

“The issue of growth and job creation in the region is not intractable because the region has people that are capable of being unleashed into entrepreneurial capacity and small-and-medium enterprises (SMEs). But they need an enabling environment, which governments in the region can provide.” Arif Masood Naqvi, Founder and Chief Executive of Abraaj Group told the conference. On the role of the government, Naqvi emphasized that “governments need to be in the business of governance not in the business of doing business.”

Ragui Assaad, Professor of Planning and Public Affairs at the University of Minnesota, agreed. He said “politicians need to redefine the private sector and realize that it’s in their political interest to focus on the SMEs” and added that “an enabling business environment starts with regulatory reforms not only for big firms but also for small businesses.”

Panelists also discussed the importance of education reform as part of revamping labor markets in the region. “What we see right now in the Arab World is a breakdown of the educational system,” said Naqvi. Ould Tah—Mauritania’s Minister of Economic Affairs and Development—seconded this, noting that the output of the educational system does not match the needs of the private sector and that governments need to work with the business community, civil society and financial partners to address that issue.

“We need to remove the distortions that government creates as an employer,” Assaad told the seminar and added that “governments misallocate labor into often unproductive public sector jobs and make people invest in the wrong skills. People are getting credentials that are suitable for government jobs but not for private sector jobs.”

To underscore the role of innovation in growth, Moncef Cheikh-Rouhou, Deputy Chairman of the Finance Committee at Tunisia’s National Constituent Assembly, said “good ideas never run after money but it’s money that chases good ideas.” He emphasized that “the region does not lack financial resources, but the link between finance and innovation is still missing.”

The seminar generated keen interventions from members of the audience who stressed the importance of good governance, regional integration to take advantage of “the huge Arab market,” and the key role of private investors, including Arab diaspora.

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